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Monday, December 03, 2007

India's Economy Expands 8.9%, Slowest Pace This Year

India's economy grew at the slowest pace since the final quarter of 2006, signaling the central bank may soon end three years of interest-rate increases.

Asia's third-largest economy expanded 8.9 percent in the three months to Sept. 30 from a year earlier, after a 9.3 percent increase in the previous quarter, the statistics office said today in New Delhi. Analysts expected an 8.7 percent gain.

``Removing bottlenecks is central for India's growth to continue,'' said Maya Bhandari, an economist at Lombard Street Research Ltd. in London. ``India is growing at its potential, its macro fundamentals are solid and you have a situation where companies will put more money there.''

India's benchmark share index gained 1.9 percent to 19363.19 on the Bombay Stock Exchange. The yield on the key 10- year government bond fell 1 basis point to 7.91 percent.

Manufacturing gained 8.6 percent last quarter from a year earlier, easing from a previous increase of 11.9 percent, according to today's report. Electricity output slowed to 7.3 percent from 8.3 percent, while farming rose 3.6 percent after a 3.8 percent gain in the quarter ended June 30.

`Gentle Slowdown'

``The Indian economy is softening but not dramatically so,'' said Robert Prior-Wandesforde, senior economist at HSBC Holdings Plc in Singapore. ``A gentle slowdown is probably exactly what the Reserve Bank of India would like to see.''

The central bank expects growth in the year to March to ease to 8.5 percent after it raised interest rates nine times since 2004. The reverse repurchase rate is now at a five-year high of 6 percent. Inflation was 3.21 percent in the week ending Nov. 17, down from 6.7 percent at the start of 2007.

Still, economic expansion in this financial year almost matches the average 8.6 percent growth from 2003, the quickest pace in the nation's history since independence in 1947. That's boosting profits for companies doing business in India.

Coal, Cement

South Africa's Richards Bay Coal Terminal, the world's biggest coal-export facility, expects a 30-fold surge in sales to India this year. Fraport said this month it is aiming to boost activities in ``booming markets'' such as China and India.

With exports accounting for only 23 percent of India's $906 billion economy, Lehman Brothers Inc. expects the South Asian nation to be immune to a deceleration in world growth sparked by mortgage defaults in the U.S.

The International Monetary Fund last month cut its projection for global growth next year to 4.8 percent from an estimate of 5.2 percent in July.

India's pace of growth is almost three times the economic expansion in the U.S. and countries that share the euro, and falls only behind China's 11.5 percent gain last quarter among the world's top 15 economies.

Global producers of cement, steel, copper and other products are benefiting from a five-year $500 billion plan by India's government to modernize and expand roads, ports and other infrastructure.

Foreign Investment

``Despite a slowdown in manufacturing, the sustained rate of investment gives me the confidence that the year will end pretty close to 9 percent growth,'' Indian Finance Minister Palaniappan Chidambaram told reporters in New Delhi. ``With luck, it could even be on the right side of 9 percent.''

The government will next week consider easing foreign investment rules in aircraft maintenance companies, petroleum marketing firms and commodity exchanges, the Economic Times reported. Since assuming office in May 2004, the government has relaxed foreign investments in telecommunications and single- brand retail outlets.

``India is very committed to reforms,'' said Stephen Roach, chairman of Morgan Stanley Asia Ltd. ``I like what I see in India. The Indian economy is really performing very impressively right now.''

Demand in India is also being bolstered by new jobs created by companies such as Cisco Systems and Mahindra & Mahindra Ltd., which are expanding to benefit from local consumer spending.

More Jobs

Cisco Systems Inc., the world's largest maker of computer- networking equipment, plans to triple its workforce in India to 10,000 people by 2010, Chief Executive Officer John Chambers said last month.

Mahindra, India's biggest sport-utility vehicle maker, plans to spend about $1 billion in the next four years to double automobile production.

State Bank of India, the nation's biggest lender, today won government approval for a $4.2 billion share sale, its first in a decade, amid higher demand for mortgage, car and other loans.

The Indian economy has quadrupled in size since 1991, when the Oxford-educated Singh as the finance minister, introduced free-market measures that cut red tape and allowed foreign companies to set up operations locally. That's helped double per capita income in the last eight years.

Emerging Economies

Our Personal Blogs

Claus and Edward's "Baker's Dozen"

Claus Vistesen and Edward Hugh are proud and happy to announce that they are now working as "featured analysts" with a new Boston-based start-up - Emerginvest.

Claus and Edward have used a new, updated, methodology in order to identify a group of 13 emerging economies which we consider are going to outperform both the rest of the emerging economy group and the OECD economies in terms of a number of key performance indicators over the 2008 - 2020 horizon.

Through our association with Emerginvest we hope to develop performance indicators which will confirm both the relevance and validity of the selection procedure adopted.

We would like to point out that we have absolutely no financial connection whatsoever with Emerginvest - although we do heartily endorse what they are trying to do.

In particular we see the move by the investment community towards emerging markets as one of the most effective and direct ways to address those issues of inter-country wealth and income imbalances which have plagued our planet for so long now - namely by getting the money from the rich who have it to the poor who need it.

Sending investment to emerging economies is also a way of addressing the underlying imbalances which exist between the relatively older populations of the developed economies who increasingly need to save, and the relatively younger emerging economies who can benefit from the investment of those savings in their countries. So in a way you can both ensure the future of your own pension and help attack poverty at one and the same time. This type of possibility is normally known in economics as "win-win".

The oldest known source and most probable origin for the expression "baker's dozen" dates to the 13th century in one of the earliest English statutes, instituted during the reign of Henry III (r. 1216-1272), called the Assize of Bread and Ale. Bakers who were found to have shortchanged customers could be liable to severe punishment. To guard against the punishment of losing a hand to an axe, a baker would give 13 for the price of 12, to be certain of not being known as a cheat. Specifically, the practice of baking 13 items for an intended dozen was to prevent "short measure", on the basis that one of the 13 could be lost, eaten, burnt or ruined in some way, leaving the baker with the original dozen.

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About Claus

Claus Vistesen is a 23 year old macroeconomist who is on the point of finishing his MSc in Applied Economics and Finance from the Copenhagen Business School. His primary research interests are international finance and international macroeconomics. Claus is especially interested in how the changing structure of global and national demographics impacts on local macroeconomic performance. Moreover - and as the wonk he ultimately is - he also takes a considerable interest issues and methodologies associated with econometrics, and this is an interest he intends to develop in his postgraduate research.

About Edward

Edward 'the bonobo' is a Catalan macroeconomist and economic demographer of British extraction, now based in Barcelona. By inclination he is a macroeconomist, but his deep-seated obsession with trying to understand the economic impact of contemporary demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".